Daily Speculations The Web Site of Victor Niederhoffer and Laurel Kenner

07-Jun-2006
Paper, from Stefan Jovanovich

When J. P. Morgan began his career in 1857, there were no traders who dealt solely in securities. The exchanges throughout the country dealt more in agricultural commodities -- corn, cattle, hogs, wheat and cotton -- than they did in stocks. Daniel Drew had expanded from buying and selling "beeves" to the more disreputable trade of banking, i.e., handling paper. But even his speculations were tied to hard-won insider knowledge of the cattle market. In bidding to take over the Erie Railroad, Drew was speculating that the road's early boom in traffic would continue as New York City demanded greater deliveries of fresh milk from the same farms where Drew had begun working as a drover after the War of 1812.

The very notion that people should engage in buying and selling "paper" was still highly suspect. So was the idea that the private market could honestly represent the interests of the country. As Morgan set to work applying the then arcane academic skills of accountancy, newly-elected President Buchanan was reassuring the nation that he would put a stop to the horrors of finance, announcing in his Inaugural Address:

The country's existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits, exciting the people to wild speculations and gambling in stocks. These revulsions must continue to recur at successive intervals so long as the amount of the paper currency and bank loans and discounts of the country shall be left to the discretion of 1,400 irresponsible banking institutions, which from the very law of their nature will consult the interest of their stockholders rather than the public welfare.